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Thursday, July 3, 2014

James E. Pepper’s Fraud Previews The Taft Decision.

There’s a rule in the law that when
you ask for an injunction, you can’t have been a bad guy too. In 1893 when James E. Pepper tried to protect
his “Old Pepper” brand, he learned this rule the hard way.

The events described in Krauss v. Jos. R. Peebles’ Sons Co., 58
F. 585 (S.D. Ohio 1893) all take place after James Pepper went bankrupt in 1877
and lost his father’s distillery in Versailles, Kentucky – the famed “Old Oscar
Pepper Distillery” where Old Crow was born – to Labrot & Graham. They also take place after Pepper
unsuccessfully sued Labrot & Graham (here’s my Pepper
v. Labrot & Graham post).

After losing his father’s
distillery and losing the right to use the “Old Oscar Pepper” name, James
Pepper built a new distillery in Lexington, Kentucky. He started distilling there in May 1880 and
designed this new shield trademark, which he printed on gold paper for labels:

As many new whiskey distillers
know, starting a new distillery has high front-end expenses with a long wait
before any whiskey is fit to sell.
Perhaps to account for this reality, Pepper sold newly-filled barrels to
the Jos. R. Peebles’ Sons Co., a large Cincinnati grocer and liquor dealer, for
aging and bottling, and kept other barrels in his own warehouse.

Then, after six years of aging,
Pepper was ready to sell his first run of bourbon in 1886. Peebles was also selling (and had been
selling) this bourbon under the “Old Pepper” brand, but after Pepper got into
the bottling business, he supplied the gold shield labels to Peebles and other
bottlers. Pepper also continued bulk
barrel sales to Peebles after 1886, through 1893, when Pepper decided make Otto
Krauss his sole distributor, and contracted with Kraus to sell him 30,000 cases
per year, plus 1,000 barrels of bourbon and 500 barrels of rye per year.

Peebles still had a large supply of
Old Pepper bourbon, so it continued to bottle and sell it, using the same
labeling it had always used. Krauss took
exception (and I’ve read separately that James Pepper was a silent partner with
Krauss), and sued Peebles in the spring of 1893, asking for an injunction to
prohibit Peebles from labeling its bottles as “Old Pepper.”

The judge for the case was none
other than William Howard Taft, Sixth Circuit Judge from 1892-1900, before his
single term as President (1908 – 1912) and eventual service as United States
Supreme Court Chief Justice (1921 – 1930).
Whiskey fans most likely know him as President Taft for his “Taft
Decision” in 1909, which clarified the Pure Food & Drug Act and finally
answered the question “What is whiskey?” by defining “straight,” “blended” and “imitation”
whiskey.

Circuit Judge Taft found some
disturbing evidence in the case that might have influenced his “Taft Decision”
as President 16 years later. Evidence
was presented showing, despite Pepper’s labels and guarantees to the public, that
at least since December 1891 he had been buying bourbon from other distilleries
and blending it with his own bourbon – all the while still guaranteeing to the
public that it was distilled by him, as genuine and unadulterated Old Pepper.

The percentages varied each month,
but Judge Taft recited the exact percentage of “foreign” whiskey that Pepper
blended into his bottles of Old Pepper on a monthly basis over the course of 19
months. It was often over 50% foreign
whiskey, with a high of 66% foreign whiskey in one month, and an average of
over 1/3 of every bottle being foreign whiskey over that period. Judge Taft took Pepper and Krauss to
task. He recited all of the express
guarantees contained all over the Old Pepper label that it was pure, unmixed
with other whiskey, that the bottle contained nothing but Old Pepper bourbon
distilled at the James E. Pepper Distillery in Lexington, by James Pepper
himself. Judge Taft ruled that this was “a
false representation, and a fraud upon the purchasing public,” and “the public
are entitled to a true statement as to the origin of the whisky, if any
statement is made at all.”

So Krauss and Pepper could not stop
Peebles from using the Old Pepper trademarks because Krauss and Pepper were
themselves engaged in fraud. I’d be
willing to bet that this 1893 decision influenced President Taft in 1909 when
he defined the standards for labeling whiskey.
In fact, in 1909 President Taft wrote that through his decision, “the
public will be made to know exactly the kind of whisky they buy and drink…” That’s an admirable goal that we’re still working toward today, as we’re
faced with similar resistance from a few producers and non-distiller producers,
along with sometimes lax enforcement of existing laws by TTB. James Pepper might have fared better today with
TTB than he did in 1893 against Taft.

Thanks for the comment. In most cases we certainly know more about what we buy, but as you say, we're still working on it! I wonder how long we give the handful of deceptive producers to get honest, or how long we give the regulators to enforce laws already in existence.

What is funny is how the brand Jame E. Pepper 1776 is following in it's namesakes legacy. 100% of the whiskey they bottle (rye and bourbon) is produced by someone else instead of just 50-50%. Of course the label has some rigmarole about the whiskeys "legacy" and "history"... pfft.

Yes, the new brand is definitely being true to history, including trying to tie back to 1776, which was a farce started by James E. Pepper himself. Pepper was one of the more colorful characters and I can appreciate him for that, but I don't buy the new brand using his name.